Navigating Crypto

Michael Kamerman, CEO of Skilling explains why crypto is here to stay. 

On the one hand, the continuing emergence of new cryptocurrencies presents a new way for traders to manage their finances, but on the other, crypto is perceived as a “get rich scheme” influenced by endorsements from celebrities and social media. The Bank of England is pushing to regulate crypto, arguing its volatility poses an existential threat to the global financial system, which is problematic for those who know of its potential and see its drive within the younger generation. Today’s retail traders must apply emotional intelligence and carry out thorough research in their crypto trading if they wish to reap long-term rewards from its growth.

Crypto’s misguided reputation

For those not yet involved in crypto trading, the crypto world may seem slightly daunting to begin putting their hard-earned money into. Its current volatility is sometimes directly driven by notable influencers online such as Elon Musk who recently, upon simply sharing a picture of his dog on social media, dramatically raised the value of the Shiba Inu coin – which is now the world’s 11th largest crypto. Social media influence from magnates directly causing the rise and fall of crypto assets has also been seen with other popular cryptos such as Dogecoin, emphasising the importance of applying emotional intelligence when trading.

It doesn’t help that many brokers have taken advantage of the current crypto zeitgeist to create novel crypto coins and tokens – leading traders to unwittingly embark on “pump and dump” schemes. Taking advantage of novice traders by promising to multiply their investment, only to then pull the rug out from underneath them, has also unfairly tarnished crypto’s reputation, epitomised by the recent Squid Game tokens scandal.

However, instability is to be expected with a decentralised asset such as crypto. The fact that it is not issued, regulated, or backed by a central authority cannot be foolishly overlooked. Whilst this can be attractive to novice and younger traders in particular, traders must be mindful of what exactly they are putting their money into by conducting extensive research and not allowing themselves to become emotionally influenced by any social media hype. Crypto can prove to be an incredibly successful financial investment if traders aren’t foolish. After all, you wouldn’t invest in a property without carrying out your due diligence beforehand, nor would you invest in it simply because a celebrity promoted it, so why would you when it comes to crypto investment?

Emotional intelligence and crypto

With a social media post about crypto being uploaded every 2 seconds on the internet, fluctuations in a crypto coin or token’s value are often driven by the over-excitement or fear that comes with it. Fear of missing out on a profit or losing money may cause traders to make a regrettable decision with their trading, resulting in “bad plays” as the value of the coin dramatically changes, for seemingly no reason, sometimes in the space of a few hours.

To mitigate risks, traders need to make sure they are emotionally rational with their investment decisions. Constantly looking at the price of a coin in fear of losing money or missing out on a gain, can do more harm than good, leading to reckless, unwise decisions being made. Instead, being thorough in prior research of a crypto and trusting in its value will help make sure a social media post from a particular celebrity doesn’t cause traders to panic.

A young person’s game

Traditionally, consumers looking to diversify their financial portfolio would likely consider investing in stocks and bonds as a “safe” way of ensuring long term financial gain. Today’s older generations, who started their investing journey decades earlier, are now reaping the benefits and are less concerned with making money in the short-term in a way that might be risky.

For today’s younger, more adventurous and risk-taking traders, stocks and bonds are too slow a way of making money. With many having the luxury of more time on their hands, they can afford to take bigger risks with their investments to multiply their money faster than traditional forms of investments. Crypto is the perfect asset for them to champion, with certain tokens having incredibly innovative business models and using technology in ways that will likely continue to shake up the industry in the coming years. 

Nevertheless, with investing in something as exciting yet volatile as crypto, retail traders need to keep a level head to ride through the inevitable peaks and troughs. Prospective traders should make sure to assess crypto investments as they would any other investment, as being too emotionally vested in the initial outcome may end up hurting their capital, leaving them disillusioned and dissatisfied.

Ultimately, crypto is like any other asset in the market – its value is driven by investors who bump and lower the price. What is fundamentally different, however, is the severity and speed by which its value can change. In such a volatile space, it is crucial that investors are considered, thorough, and apply significant emotional intelligence if they wish to successfully cash in on crypto investment.

This article does not constitute investment advice. 66% of retail CFD accounts lose money. Trading cryptocurrency is not available for UK retail clients.

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